News

Former eastern block countries are switching to market economies, joining the European Union, and attracting foreign investment. That, combined with their central location and moderate labor rates, has already transformed countries such as Bulgaria, Poland, the Czech Republic, Slovakia, and Hungary into manufacturing powerhouses, according to an article in the Financial Times in early December. “Central and Eastern Europe is the factory of Europe, just as China is the factory of Asia,” Lee Tai-sik, chairman of the Korea Business Centre, which promotes South Korean trade and investment in Poland, told the Financial Times.

A recent report by market researcher Technology Forecasters Inc. (TFI) backs that up. TFI estimates that electronics production in the region is about $85 billion, including output from OEMs, EMS providers, ODMs, and electronic components and materials suppliers. The research firm expects that to grow to $100 billion in the next few years. Hungary, the largest electronics producer in the region, is home to 8,100 electronics companies, according to TFI. Among them are global EMS companies Foxconn Electronics Inc. , Jabil Circuit Inc. (NYSE: JBL), Flextronics Corp. (Nasdaq: FLEX), Elcoteq Network Corp. , and Sanmina-SCI Corp. (Nasdaq: SANM); Hungarian EMS companies Zollner and Videoton; and multinational OEMs Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) , Sony Corp. (NYSE: SNE), Bosch, Ericsson AB (Nasdaq: ERIC), and Siemens AG (NYSE: SI; Frankfurt: SIE).

The manufacturing boom was spurred in part by a migration of automotive manufacturing to the region. Many car companies launched facilities in the region between 2003 and 2009: Volkswagen in the Czech Republic, Hungary, and Slovakia; Daimler in Hungary; Peugot, Toyota, and Kia in the Czech Republic; General Motors in Poland; Hyundai in Slovakia; and Renault in Romania. This migration brought with it all the electronics suppliers to the car companies and helped cement a solid infrastructure and tight supply chain in the region. In 2009, however, auto manufacturing was hit hard by the global recession. That year, auto production in Hungary fell by 43 percent, in Poland by 7 percent, and in Slovakia by 20 percent.

But the presence of a strong supply chain as well as tariff-free access to EU markets has continued to attract technology manufacturers. Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia are now EU members; Croatia, Macedonia, and Turkey are official candidates to join. These manufacturers also like the advantages of being close to their markets, including the ability to customize particular products for a specific region or customer. In fact, almost half of the respondents in TFI’s study consider Central and Eastern Europe to be more desirable manufacturing locations than Asia for products heading to Europe, Middle East, and Africa (EMEA) customers.

“We’ve been so skewed toward China and Asia for the last 10 years, some companies are looking up and asking whether that is really the best place for them to manufacture,” says Pamela Gordon, president of TFI. She estimates that there are 30 percent more electronics companies in the region today than in 2007. “Given that most of the world’s large electronics companies -- and many smaller ones -- are growing their operations in Central and Eastern Europe, we are confident that the strategic role of the region will only increase,” she notes.